With UK dividends under considerable pressure, have Asian companies continued to deliver payouts to shareholders?
- Investors have looked to Asian dividends for stronger growth and diversification
- Dividends have been resilient over the past 12 months and are likely to see a smaller hit than that seen elsewhere
- Investors may want to consider the balance of equity income in their portfolio
Investors have increasingly looked beyond the UK for dividend income in recent years, recognising that the stodgy dividend payers of the FTSE 100 may not be the best route to growing their income over time. Asia has been a key beneficiary, but how resilient have Asian dividends proved in the current rout?
There are some compelling arguments made for investing in Asia for income. Asia’s dividend culture is emerging, rather than mature: companies tend to pay out less of their profits as dividends, giving them more room to manoeuvre at times of crisis. They also tend to be less indebted, largely as a legacy of the Asian financial crisis.
At the same time, investors aren’t limiting themselves to a handful of slow growth sectors. The UK income sectors reliance on oil majors and mining companies has never looked more precarious. In Asia, there are a broad range of companies that pay dividends, from technology to consumer staples. As such, it is an effective diversifier.
So the theory is sound, but has this worked out in reality? The Henderson Far East Income index shows a more nuanced picture. Overall, dividends over the 12 months to the end of April were flat. Without Australia, where a number of key dividend payers cut their payouts, dividends rose 4.6%. This is a reasonably robust performance given that it incorporates many of the Asian lockdowns.
However, the full impact of Covid-19 has not yet filtered through the market. Henderson says that Asia should fare better than the rest of the world, but dividends could still drop by anywhere between 9% and 38%. Much may depend on the banking sector. As it stands, Asian governments have not put pressure on the banking sector either to prop up the flailing corporate sector or to cut their dividends. The notable exception was UK-headquartered HSBC.
The longer-term picture supports the view that Asia is a fertile source of dividends. Asian dividend payouts have more than tripled over the past decade, while those in the rest of the world have only doubled. Asian dividends have grown consistently since 2013 and remain resilient even through the US/China trade tensions and Covid-19 outbreak.
Previously, investors may have held UK equity income at the core of their portfolio with Asian equity income there for a little ‘spice’. However, given the weakness in UK dividends exposed by the Covid-19 outbreak, investors should perhaps reappraise that view.